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Wednesday, August 20, 2014

Homeownership Rates Come Back Down the Mountain

Back in the mid-1990s, I thought of the U.S. homeownership rate as fairly constant, holding at about 64-65% most of the time. In the fourth quarter of 1995, for example, the homeownership rate was a bit above this range at 65.1%. But looking back at Census Department data for the fourth quarter of various years (see Table 14 here), the homeownership rate had been 64.1% in 1990, 63.5% in 1985, 65.5% in 1980, 64.5% in 1975, 64.0% in 1970, and 63.4% in 1965.

Since 1995, U.S. homeownership rates have climbed a mountain--speaking graphically--and have now come back down. Here's a figure from the Census Bureau's July 29 report on "Residential Vacancies and Homeownership in the Second Quarter 2014." The homeownership rate checked in at 64.7% in the second quarter of 2014.

Here's a slightly different perspective from the same report, looking at the vacancy rate--that is what share of rental housing and of homes are vacant.

At about the same time that the homeownership rate was rising in the first half of the 1990s, the vacancy rate for homes was also rising--which suggests that an enormous boom in residential construction was occurring at the time.

It's worth remembering that as homeownership rates climbed up one side of the mountain from about 1995 to 2004, the change was viewed as a success by both parties. Bill Clinton had a National Homeownership Strategy which pushed to make it easier for people with lower incomes to own a home. As Clinton said in announcing the initiative:

You want to reinforce family values in America, encourage two-parent households, get people to stay home? Make it easy for people to own their own homes and enjoy the rewards of family life and see their work rewarded. This is a big deal. This is about more than money and sticks and boards and windows. This is about the way we live as a people and what kind of society we're going to have. ... The goal of this strategy, to boost home ownership to 67.5 percent by the year 2000, would take us to an all-time high, helping as many as 8 million American families across that threshold. ... Our home ownership strategy will not cost the taxpayers one extra cent. It will not require legislation. It will not add more Federal programs or grow Federal bureaucracy. It's 100 specific actions that address the practical needs of people who are trying to build their own personal version of the American dream, to help moderate income families who pay high rents but haven't been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership.

The Clinton initiative, together with the booming U.S. economy in the second half of the 1990s, reached that goal of 67.5% homeownership rate by the year 2000. When George W. Bush became president, he pushed for an "ownership society," with policies to help people with down payments on a home and increase the number of minority homeowners. As Bush said in a 2003 speech:

"This Administration will constantly strive to promote an ownership society in America. We want more people owning their own home. It is in our national interest that more people own their own home. After all, if you own your own home, you have a vital stake in the future of our country."

When the homeownership rate peaked at 69.4% in the second quarter of 2004, and for some months afterward, there was strong bipartisan support for the policies that had raised homeownership rates. At the time, existing homeowners were largely delighted as well with the swelling price of their homes.

Of course, the underlying problems have now become obvious. It's hard to oppose policies that gives low-income people a better chance to own a home. But if those policies involve encouraging those with lower incomes to take out subprime mortgages, so that the people you are claiming to help will be actually be carrying overly large debt burdens and become highly vulnerable to a downturn in housing prices, then this way of pushing for higher rates of homeownership is a poisoned chalice. I'm very supportive of building institutions and laws that will make it easier for those with low and medium incomes to accumulate financial and nonfinancial assets, including a home. But let's focus on ways of encouraging actual saving, not ways of encouraging excessive borrowing.